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Multi-State Investigations: Effective and Efficient Strategies
Katherine Combs EXELON CORPORATION Lisa L. Tharpe FOLEY & LARDNER LLP
Multi-State Investigations: Effective and Efficient Strategies - - PDF document
Multi-State Investigations: Effective and Efficient Strategies - - PDF document
Multi-State Investigations: Effective and Efficient Strategies Katherine Combs EXELON CORPORATION Lisa L. Tharpe FOLEY & LARDNER LLP To ask a question using the question pane Enter your question into the text area and click Ask.
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Today’s Speaker
Lisa Tharpe
Partner, Foley & Lardner LLP
- Member of the firm's Securities Litigation, Enforcement & Regulation and
White Collar Defense & Corporate Compliance Practices.
- Concentrates in corporate litigation, with a primary focus on the
representation of parties in the securities and financial services industry.
- Participated in counseling and defending individual members and
member firms in connection with proceedings before the SEC, the National Association of Securities Dealers, and state securities regulatory bodies.
Today’s Speaker
Kathy Combs
Senior VP, Governance and Deputy General Counsel and Secretary
- Oversees internal investigations and business conduct oversee all
investigations of various sorts per year.
- Responsible for corporate governance and for compliance with the
requirements of the SOX and other corporate governance reforms.
- Oversees SEC reporting and disclosure and provides legal counseling
- n securities laws and regulations.
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Today’s Moderator
Brendan Sheehan
Executive Editor, Corporate Secretary
- Editorial mission: To provide innovative and insightful analysis for corporate
secretaries, general counsel and compliance officers
- Corporate Secretary is the leading source of information on matters relating
to the SEC, Sarbanes-Oxley, D&O insurance, shareholder communications, proxy solicitation and voting, director education and compensation, listing requirements and entity management
Summary
- Purpose: Practical considerations for effectively
managing and responding to multi-state investigations Considerations based on experience: success and failure Key “practice points” in red
- Agenda for today:
Background Preparation and immediate considerations Understanding the unique challenges of multi-state investigations Undertaking an internal investigation Reporting the results of the investigation
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Background: The Emerging Importance of Multi-State Investigations
- A recent, and now established, fact and challenge of corporate life
- Driven in part by highly publicized national and state regulatory
investigations, inquiries and actions
- Also driven by:
Compliance concerns Employee complaints (internal and “whistle blowers”) Shareholder inquiries Private litigation Customer or vendor complaints
Important Early Considerations
Revamp supervisory systems and procedures to ensure they are as robust and thorough as possible Encourages a culture of compliance Helps the institution to best position itself with regulators Standardize internal investigation procedures on a regional/national level Standardize procedures among relevant departments: internal audit, legal, security/risk; also consider sharing with outside counsel Coordinate responses to investigations to ensure responses are consistent
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Polling Question #1
How many of you have standardized internal investigations procedures across all offices and departments?
My company does My company does not
Live Meeting Poll
Changes directly made to this slide will not be displayed in Live Meeting. Edit this slide by selecting Properties in the Live Meeting Presentation menu.
Important Early Considerations
Commitment and support of senior management Explaining the investigation to revenue generators Addressing resistance Written authorization and directions Investigative team must have real authority Coordination between investigative team and senior management Involvement in decisions related to the investigation
Termination of employment decisions Government filings Press releases
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Important Early Considerations
Speed is of the essence! Stop the improper conduct! Assuring retention of documents and electronic information Suspension of standard retention policies: hard copy and electronic Delivering a strong, written directive Securing documents and electronic information that might be in jeopardy
Important Early Considerations
Documenting the steps of the investigation By leadership of the investigative team By members of the team Preparing a chronology of facts Interim reports to senior management Moves investigation forward Keeps senior management informed for purposes of assessing scope of investigation and making interim decisions
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Important Early Considerations
Establishing the tone of the investigation
Avoiding the appearance of a “witch hunt” Avoiding undue morale problems Avoiding inappropriate employee communications Proper instructions The problem of shared recollection
Preparing for the Investigation
Selecting an internal investigative team
Establishing an investigative and reporting hierarchy In-house attorneys, compliance, human resources
- Retaining outside counsel
Importance to create appearance of independence Credibility is Key: Knowledge of and experience with relevant state regulator Company liaison with outside counsel
- Retaining third party experts
Formal engagement letter Accountants or audit firm Which accountants or audit firm? E-mail and technology services Engage as early as possible
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Unique Challenges of Multi-State Investigations: National or Regional Coordination
- Many state regulators or attorneys general have formed national
- rganizations or joint task forces
- Eg. North American Securities Administrators Association
(“NASAA”) at www.nasaa.org Allows state regulators to share information about: Emerging problems or causes for concern in their respective states or industries Results of their respective investigations Strategies for pursuing investigations
Unique Challenges of Multi-State Investigations: National or Regional Coordination
Practice Pointer: Institutions should also consider national or regional coordination Informal Networks Formed by members of same or similar industries Check-in informally on a monthly or quarterly basis Share subjects or status of recent state inquiries Formal Defense Groups Formed by group of institutions that have received the same or similar inquiries from state regulators Meet on a regular basis to share subjects of inquiries, coordinate responses
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Polling Question #2
How many of you have joined (either directly or through outside counsel) a joint defense group in connection with responding to a state investigation?
My company does My company does not
Live Meeting Poll
Changes directly made to this slide will not be displayed in Live Meeting. Edit this slide by selecting Properties in the Live Meeting Presentation menu.
Unique Challenges of Multi-State Investigations: National or Regional Coordination
- Benefits of Formal or Informal Coordination
May receive advanced notice of an investigation, greater lead time to identify and prepare a response Larger numbers of respondents permits greater leverage reductions in scope, extensions of time Larger number of respondents also allows institutions to negotiate settlements, when and if the investigation should result in a settlement, from a position of strength Important to consider if the resolution sought by the regulator may significantly alter the landscape of a particular industry
- Eg. Equity Indexed Annuities
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Unique Challenges of Multi-State Investigations: National or Regional Coordination
- Possible detriment to coordinating among institutions
Guilt by association Some members of the industry may be much more involved in alleged wrongful conduct than others Make sure you position your institution with those that are similarly situated – often difficult to know May inhibit a quick resolution of the investigation Once an respondent joins a joint defense group, it is often difficult to separate again Generally, joint defense groups slow down the investigation Practice Pointer: Consider joining a formal joint defense group only if you believe that your institution has substantial exposure.
Unique Motivations of Multi-State Investigations: Role of Publicity
Publicity as a weapon to bring institutions to the settlement table Fear of bad publicity, being seen as a bad company Most important to institutions with retail business, dealing directly with consumers May lead to filing of class action lawsuits Publicity as campaigning Many state regulators/attorneys general have greater career aspirations Will be more motivate to extract a larger settlement and to publish the settlement
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Unique Motivations of Multi-State Investigations: Role of Publicity
- Practice Pointers: For those institutions that seek to minimize negative
publicity Get out in front of investigation early Learn about subject of investigation as early as possible Hire outside counsel with good relationship with state regulator Complete thorough internal investigation and share results with the state regulator Identify single individual responsible for responding to press inquiries Consider developing public relations strategy for responding to negative publicity: proceed with caution Propose unique solutions that reduce individual role
Global settlement announcement that includes all respondents settling a particular investigation
Unique Motivations of Multi-State Investigations: Financial Motivations
State regulators benefit more directly from large fines Fines imposed by state regulators flow into the states’ general fund May have a direct impact on budgets, salaries, etc. Contrasts with federal regulators Fines vs. restitution: Practice Pointers Restitution is aimed reimbursing customers and therefore can be presented as a “higher goal” Institutions may obtain tax benefits from payment of restitution; no tax benefit from fines Institutions may also obtain offset for pending or future class action lawsuits
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Conducting The Investigation
Collection of Documentation and Information Identification of sources of information Identification of types of information Identification of location of information Collection and review of documents By corporate personnel By proper members of investigative team Documents should flow through counsel (try to maintain privileges) Cross-checking sources, drafts, etc. Keeping a detailed search and review log Loading into, and searching in, electronic format
Conducting The Investigation
- The importance and challenges of e-mail and electronic information
Identification of sources Individuals Data storage Prevention of automatic deletion or overwriting
- Collection
Utilization of in-house technology Outside expertise
- Additional records to preserve and gather
Calendars (hard copy and electronic) Hand-held electronic devices Telephone records
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Conducting the Investigation
- Interviews of Witnesses
Setting the interview schedule/Working “up the ladder”
- Conducting the interviews
Attendees: Including a representative of the company Initial disclosures Outlines and notes
- Interview memorandum
Contents Distribution
- Cross-checking and follow-up interviews
- Additional considerations
Counsel for the interviewee Handling the hostile or reluctant interviewee Interviewing senior level management Witnesses contacted directly by the government
Collection of Information From Third Parties
- Proceed with utmost caution
- Identifying sources of information
Former employees
- Considerations in requesting information
Proper approach by proper company representative Type of information being sought Disclosure of potential issues and existence of investigation Compromising privilege protection Whether the investigation will be comprehensive without the information
- Begin formulating strategy early
Maximizes options Reduces “being at the mercy” of third party
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Findings of the Internal Investigation
Reporting to senior management Recipients of the report Contents of the report Preparation of a written report Considerations Content Distribution
Polling Question #3
How many of you have shared the written results
- f internal investigations with state regulators?
My company does My company does not
Live Meeting Poll
Changes directly made to this slide will not be displayed in Live Meeting. Edit this slide by selecting Properties in the Live Meeting Presentation menu.
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Action in Light of the Investigation
Remedial action must be proper and prompt Remedial internal action Revised corporate procedures Revised corporate structure Revised compliance procedures or oversight Employee disciplinary action Remedial external action Disclosures in public filings Compensating injured third parties
Sharing Results of the Internal Investigation
- Sharing the report with the government
Pre-investigation: May minimize or preclude an investigation Minimizing adverse consequences of a government investigation or action
- Ramifications of sharing the report
Waiver of privileges (McNulty Memo, revising Thompson memo) Steps to minimize No guarantee of protection Identification of wrongdoers Identification of sources Circulation beyond the company’s control Possible criminal implications
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The Ramifications of an Incomplete or Negligent Investigation
Will precipitate full blown government investigation and sanctions Loss of credibility going forward Provides no cover in private litigation Future misconduct possible Waste of corporate assets
Final Thoughts
Importance of Coordination: Among departments, offices, and throughout industry Speed is of the essence Sensitivity to unique motivations of state regulators: publicity, greater political ambitions, financial motivations Consider ramifications of sharing results of investigation with the state investigators: waiver of privilege for other inquiries and possible private litigation Always consider possible criminal consequences
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Thank you for your participation
For more information on the Corporate Wavelength web conference series, visit Foley.com/corporatewavelength Lisa Tharpe ltharpe@foley.com Kathy Combs Katherine.combs@exeloncorp.com Brendan Sheehan brendan.sheehan@thecrossbordergroup.com